What Yahoo! Inc. (YHOO) Needs to Do With Tumblr

Every time Yahoo! Inc. (NASDAQ:YHOO) ties itself up in a deal, investors can easily wonder whether the company will finally piece together its Web technology and Web content, two areas of business that Yahoo! seems to have operated somewhat discretely. In all likelihood, Yahoo! wants to remain in the business of its own Web-content creation, and Web-content assemblage based on third-party materials.

But, its content business will have a better chance of making a bigger splash in the overflows of Web information only if Yahoo! Inc. (NASDAQ:YHOO) really strives to leverage its Web-technology capability by applying uniquely Yahoo!-coding techniques and developing supporting Web tools to help enrich its users’ content-consuming experience.

Tumblr purchase

Has all that come to fruition this time with Yahoo! Inc. (NASDAQ:YHOO) adding another Web property, Tumblr — a collection of user-generated blogs–to its already-sprawling Web-content presence? Little to Yahoo! shareholders’ surprise, none of what has been desirable is forthcoming just yet.

The Tumblr purchase reportedly models Google Inc (NASDAQ:GOOG)‘s YouTube acquisition, which allowed YouTube to remain as a stand-alone company with a separate corporate and tax reporting identity under YouTube, LLC. Yahoo! intends to keep Tumblr independent, and even more so on management and operations for the blogging-platform operator. To grant Tumblr’s current team continued development discretion is “not to screw it up,” according to Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Mayer.

But clearly, spending over $1 billion of shareholders’ money is not just for the right of listing in Yahoo!’s balance sheet an investment in an asset called Tumblr, Inc. Yahoo! has an obligation to integrate Tumblr’s blog publishing service into its own business settings. To be sure, Google Inc (NASDAQ:GOOG) never left YouTube just hanging on its balance sheet.

Behind YouTube video ads, it’s all Google’s ad placing and serving technologies, plus advertisement analytic tools to provide marketers with necessary business intelligence and help them better understand their target audience. Given that Yahoo! Inc. (NASDAQ:YHOO) is no front runner in managing display ads, there will be much ground that the company has to cover when trying to capitalize on Tumblr’s 13 billion monthly pageviews.

Advertising model

As much as the advertising model is at its core a bit counter-intuitive in a traditional business sense, it is still the one practical monetizing solution for Web companies to make money. Everywhere else in the business world, if a company provides a product or service, it expects whoever uses it to pay. Not an all-certain business exchange on the predominantly free Web. Here, companies don’t really sell their Web services and application tools to users.

Instead, many Web companies monetize their user presence and usage to collect ad dollars from other businesses offering traditional products or services. This makes a strange business practice for Web companies. Web companies must find ways to please advertisers that actually pay the expenses and contribute to profits, but they do this potentially to the detriment of their underlying business and real customers.